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Letter From the Editor: Milk Money

Anytime a product recall is quickly associated with illnesses it’s never good. But for Fonterra, the world’s largest dairy processor, the need in the past week to recall 8,700 bottles of cream for E. coli contamination could not have come at a worse time. This is a time, you see, that Fonterra, along with all others who export milk and dairy products around Asia, are waiting patiently for inspectors to show up from the government of the People’s Republic of China.

Chinese consumers, it should be noted, are giving Fonterra credit for recalling its Anchor and Pams fresh cream as soon as the problem was discovered. China’s announcement that it would begin a round of in-country inspections at the source of all its milk and baby formula imports came after last August, when Fonterra went through a scare that its whey protein might be contaminated with deadly botulism.

Fonterra, based in New Zealand, is waiting for those inspections to get under way. In-country inspections by foreign food safety agencies are the definition of normal these days. But not all of these in-country inspections are routine events. There are a couple of realities when it comes to Asia’s “milk money.” The most important of these realities are:

1. By far the most important Asian market for milk, baby formula, and dairy products is China. Rapidly growing imports are needed to make up for domestic production that cannot fulfill Chinese demands for dairy products.

2. Food safety is the top objective for dairy importers to China. Maybe it was not a priority for China prior to the 2008 melamine scandal, but it has been ever since.

China’s dairy imports total around $2 billion a year in dairy products, dairy ingredients and breeding stock. It’s reached those levels since the melamine scandal when domestic milk and infant formula were found to be contaminated with the kidney-damaging chemical. But it’s been the rapid growth that has world dairy companies scrambling to fulfill China’s demands. Chinese dairy consumption is expected to grow at almost 7 percent a year and contribute to double-digit import growth, according to USDA’s outpost in Beijing.

China’s dairy demands are the product of multiple trends coming together at once, including population growth, more urbanization, and both nutritional and food safety expectations.

All this adds up to China being a big and growing dairy products purchaser at a time when the same cannot be said for other countries in Asia. Many expect long-term growth for China because of the lifting of the 30-year-old “one child” family policy.

Finally, it’s not possible to understand China’s current, and, some might say, new emphasis on food safety without putting Fonterra’s role in the melamine scandal into perspective. Melamine can elevate the protein content in powdered milk, but only at great risk to anyone consuming it.

Fonterra knew of the problem before anyone outside of China because the 10,600-member New Zealand dairy cooperative was a minority owner of the Shijiazhuang Sanlu Group when the scandal occurred.

Eventually Sanlu and 22 other Chinese companies would be implicated in the scandal that sickened at least 300,000 infants, resulting in kidney damage that killed six. Fonterra and the government of New Zealand both claimed that it was Beijing that acted too slowly. The New Zealanders said they acted ethically throughout the scandal. Most outsiders agreed. Fonterra was like most minority owners in that they lacked the information and control to make Sanlu do anything faster than it did.

More recently, Fonterra executives have kept Beijing close, especially during food safety incidents. In September 2012, it reported on some low traces of a fertilizer known as DCD, which is used to slow down nitrate leaching in some milk samples, and gained points for its transparency. Sri Lanka banned Fonterra products, but the levels were not a problem elsewhere.

The August 2013 botulism scare was a bigger problem for Fonterra and brought recalls of infant formula, sports drinks, protein drinks and other beverages throughout Asia and the Middle East. Fonterra’s laboratory tests eventually found its whey protein was not the source of the botulism finding, but not before the head of its milk product business resigned.

Correction: Melamine does not elevate protein content. Melamine looks like protein to the simple tests commonly used to measure protein in milk, because melamine is high in nitrogen, and those simple tests actually detect nitrogen.